Tomato processing, egg products industries probed

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By 6abc Archive

SAN FRANCISCO (AP) - September 23, 2008

Rahal would drop a $100 bill and then pick it up and ask the
potential bribe recipient: "Is it yours?" If the agent said yes,
Rahal knew they were open to a "business offer," he would boast,
according to an FBI search warrant affidavit filed last month in
Sacramento federal court as part of a bribery and fraud inquiry
that also involves Rahal's client, tomato processor SK Foods of
Lemoore, Calif.

That investigation was launched in August 2005 and has since
expanded into a price-fixing probe of tomatoes, 95 percent of which
are processed in California.

At the same time, Justice Department spokeswoman Gina Talamona
said Tuesday that investigators also were looking into price-fixing
allegations in the egg industry.

Federal prosecutors already had been looking at possible
price-fixing in the citrus industry as food companies wrestle with
increasing costs of key food ingredients. Prices for vital
ingredients such as corn and oil are soaring as demand rises around
the world. And the cost pressures aren't expected to abate anytime
soon.

Although federal law bars competitors from collaborating when
setting their prices, Congress has created antitrust exemptions
intended to help small farm groups and cooperatives bargain with
large food processors. There are also exemptions for exports.

Inquiries into whether food producers overstepped those limits
are being run by federal prosecutors in Sacramento and an antitrust
division of the Justice Department based in Philadelphia.

In Sacramento, FBI agents tapped Rahal's telephones late last
year and allege to have uncovered buyers at six food companies
taking payments from him. Federal investigators also raided SK
Foods on April 16. Investigators say they subsequently coaxed
admissions from purchasers receiving payments at Agusa Inc., Kraft
Foods Inc., Safeway Inc. and Frito-Lay, which is a division of
Pepsico Inc.

Kraft Foods declined comment about the investigation.

Frito-Lay spokeswoman Aurora Gonzalez said the buyer who
admitted taking payments no longer works for the company.

"We have been working with federal authorities since we first
became aware of the investigation," Gonzalez said.

Investigators also say they have bank records and other evidence
that buyers at B&G Foods Inc. and ConAgra Foods Inc. also took
payments from Rahal, allegedly to ensure that the companies bought
tomato products from SK Foods.

ConAgra spokeswoman Stephanie Childs said the company was not a
target of the investigation and that the employee suspected of
taking bribes was placed on administrative leave in April. Safeway
spokesman Brian Dowling said the purchaser there accused of taking
bribes is no longer employed by the grocery chain.

Investigators also allege that Rahal paid the bribes in exchange
for bid information submitted to the companies by SK's competitors.

Rahal owns Westwood, N.J.-based Intramark USA. He could not be
reached for comment because the company's telephones appear to have
been disconnected.

Brian Maschler, an attorney for SK, confirmed the company was
being investigated for possible price-fixing practices. He denied
that SK was involved in any bribery scheme and fired Rahal in
April. FBI agents allege in a court filing that they eavesdropped
on telephone conversation in which SK founder and chief executive
Scott Salyer encouraged Rahal's behavior.

No charges have been filed in the tomato investigation.

Two egg producers in Minnesota - Golden Oval Eggs and Michael
Foods - noted in filings with the SEC this spring that they had
been subpoenaed by the U.S. attorney's office in the Eastern
district of Pennsylvania.

The subpoenas requested documents for the period between Jan. 1,
2002, through March 27, 2008, relating "primarily to the pricing,
marketing and sales of our egg products," both companies wrote in
their 10-Q filings.

Both companies said in the SEC filings that they intended to
cooperate.

Sandie Wohlman, executive assistant of Golden Oval Eggs of
Renville, Minn., referred questions on Tuesday to an attorney, who
did not immediately respond to an e-mail seeking an interview.

Mark Witmer, treasurer and secretary of Michael Foods Inc. in
Minnetonka, Minn., said: "We have fully responded to the request
for information."